I'm the incredibly blessed mother of 9, "Granny" to 16, and wife of "The Papa," the knight-in-shining-armor whose loving support has made it possible for me to stay home and give my life to mothering, homemaking, and 26 years of homeschooling. Life at Granny's House is full of laughter, friendship, books, music, lively debate, writing, and good things to eat. My days are made even more meaningful by coming alongside other moms, giving them the support and encouragement that I lacked as a young mother and helping them to network with each other in ways that strengthen homes and families. A few times a year I board a plane to visit my "away" kids, to attend the birth of a grandchild, or to enjoy some lazy days with my best friend, but I always love coming back to...Granny's House.

I'm the first one to admit that the mortgage lending mess is too complicated for most of us to grasp completely. But that doesn't mean we shouldn't all attempt to understand the basics--we all bear responsibility for what we allow our government to do, and in this case that means we're all responsible for a massive mess.

Here, then, is an explanation (with viewpoint) for "the rest of us," those of us who don't have a degree in economics from Harvard.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

On this much, most everyone agrees. These are the largely undisputed facts. Where politicians (and some economists) part company is in discerning what should be done to "fix" the problem and ensure that we don't end up here again.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

There is a solution.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending. [emphasis mine]

Despite the pain that Jeffrey Miron's approach would cause in the short term for you and me and much of the country, it's the only thing that's more than a band-aid. Yes, it will seem to egalitarian Americans to be unfair to poor and some middle-class families. But life isn't fair. And no amount of government Ponzi scheming can create fairness. But once we bought into the fact that everyone deserves, at taxpayer expense, a minimum standard of living, public education, etc., it's a short step to making sure that every man (or woman) can "buy" a house even if the taxpayer ends up buying it for him.

"...Tell to the coming generation the glorious deeds of the LORD, and his might, and the wonders that he has done....that the generation to come might know, even the children yet to be born, that they may arise and tell them to their children."~Psalm 78:4-6

My Focal Passage for 2011...

Philippians 2:5-11

5 Have this mind among yourselves, which is yours in Christ Jesus,

6 who, though he was in the form of God, did not count equality with God a thing to be grasped,

7 but made himself nothing, taking the form of a servant, being born in the likeness of men.

8 And being found in human form, he humbled himself by becoming obedient to the point of death, even death on a cross.

9 Therefore God has highly exalted him and bestowed on him the name that is above every name,

10 so that at the name of Jesus every knee should bow, in heaven and on earth and under the earth,

11 and every tongue confess that Jesus Christ is Lord, to the glory of God the Father.

~Philippians 2:5-11 (ESV)

Oxymoronica...

"The vanity of being known to be trusted with a secret is generally one of the chief motives to disclose it."

~Samuel Johnson

[Oxymoronica, n., A compilation of self-contradictory terms, phrases, or quotations; examples of oxymoronica appear illogical or nonsensical at first, but upon reflection, make a good deal of sense and are often profoundly true.]